PC firms may fail to win home users

ANALYST REPORT Large PC-centric companies may lose out as game machines look more likely to become the centerpiece of digital devices used in the home

BLOOMBERG

Intel Corp, Microsoft Corp, Dell Inc and Hewlett-Packard Co may be "losers" in home computing as consumers begin using video-game machines for more tasks usually handled by personal computers, Merrill Lynch & Co said.

Merrill Lynch analyst Steven Milunovich said in a note to clients yesterday that he doubts PCs "will win" in the battle over which "device will become the centerpiece of the digital family room of the future." The more likely winners will be game consoles or a device that has not yet been introduced, he said.

Microsoft, whose software runs almost 95 percent of PCs, will need to succeed with its next Xbox game console, Milunovich wrote.

Intel, the world's biggest semiconductor maker, and Dell and Hewlett-Packard, the No. 1 and No. 2 PC makers, may also be left behind because PCs are "too complex and unstable" to handle the entertainment tasks consumers want, he said.

Intel `at risk'

"We don't expect Intel will be in any of the upcoming game machines and, therefore, believe it is at risk," he wrote. "Even if successful with Xbox, Microsoft may have more to lose given its PC dominance."

Microsoft's next Xbox may be available by the middle of next year, the analyst said.

Companies such as Apple Computer Inc and Sony Corp will probably build a new category of machine that's likely to perform better than PCs in the home, Milunovich said.

The machine, which he called an entertainment server, would store movies and music and have television-like features. It would be cheaper and easier to use than entertainment PCs that Microsoft has made in conjunction with Hewlett-Packard, Sony, Dell and other computer makers, he said.

Window for Apple, Sony

"Apple has a chance to take center stage in a potentially large market," he wrote in the note. A server at a "reasonable price" with the ability to record and pause live television could be "Apple's next category killer."

Sony would also benefit from such a shift in home computing because its PlayStation 2 is the biggest-selling game console.

Milunovich said that the Play-Station 3 will probably go on sale in 2006.

Microsoft and Sony have said they will discuss their new game machines at the E3 conference in Los Angeles in May and have declined to say when they go on sale.

IBM Corp may be helped by more consumers buying game consoles instead of PCs because its chips will be used in the next models of consoles sold by Sony and Microsoft.